TFI International Inc (TFII) 2012 Q4 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standing by. Welcome to TransForce 2012 fourth quarter results conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions.

(Operator Instructions)

Before turning the meeting over to management, please be advised that this conference call will contain forward-looking -- contain statements that are forward-looking. And, subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated.

I would like to remind everyone that this conference call is being recorded on Friday, March 1, 2013.

I will now turn the conference over to Alain Bedard, Chairman, President, and CEO. Please, go ahead.

Thank you, operator, and good morning ladies and gentlemen.

Earlier this morning Canada Newswire issued a news release detailing our results for the fourth quarter and the fiscal year ended December 31, 2012. I will first provide you with the year's highlights and then give you an overview of the fourth quarter's performance on our operating segments.

In 2012, TransForce achieved record results. Total revenue was the highest in our history at CAD3.1 billion, up 17% from CAD2.7 billion in 2011. This increase is essentially due to the major acquisitions that were made in 2011. All business segments reported a higher year-over-year EBIT margin, which is a key performance metric for us. Overall, EBIT also reached a record level of CAD247 million in 2012, up 33% from CAD186 million a year earlier. EBIT represented 7.9% of total revenue in 2012, up a full point over 2011. To a significant degree, this improvement reflects our ongoing efforts to maximize efficiency and optimize operations.

Net income for 2012 increased by 51% to CAD154 million, or CAD1.55 a share fully diluted, compared to CAD102 million, or CAD1.06 a share fully diluted, in 2011. Adjusted net income, which exclude the net effect of changes in the fair value of derivatives and net foreign exchange gain or loss grew by 40% to CAD144 million or CAD1.45 per share fully diluted.

In 2012 we recorded net-cash from operating activities of CAD309.6 million while free cash flow reached CAD256 million or CAD2.77 a share. With this very healthy free cash flow we invested CAD80 million in acquisitions, repurchased CAD62 million in common shares, paid CAD47 million to our shareholders as dividend, and reimbursed up to CAD55 million in long-term debt. We will continue to use the cash flow that we generate to pursue these same objectives.

I will now give you the fourth quarter highlights for each business segment. In the Package and Courier segment, revenue excluding fuel surcharge, was CAD271 million, flat compared to last year in the fourth quarter of 2011. The poor economy climate led to a lower shipping activity with our existing customer base.

Our strict focus on improving productivity and controlling cost, coupled with the implementation of technology and facility related initiatives, made it possible for us to reduce operating expense by 3% year-over-year. As a result, we boosted EBIT by 32% to CAD26.3 million in the fourth quarter of 2012. EBIT margin was 8.7%, up 2.1 points from last year.

In the LTL segment, revenue before fuel surcharge climbed to CAD135.9 million in Q4 up 32% from 2011. The increase is due to the Quik X acquisition made earlier in the year, as a matter of fact, in January. Industry over-capacity and pricing are still a major challenge. We continue to adjust and optimize operations, consolidate resources and terminals. These efforts are improving profitability and more efficiency can be expected going forward.

In Q4, LTL operating expense, before depreciation and excluding Quik X, decreased by CAD6.3 million, or 7%, compared to Q4 of 2011. This resulted in an EBIT excluding, Quik X, of CAD8.7 million, up CAD3.1 million versus last year. Total EBIT stood at CAD10.7 million.

In the truckload segment, revenue excluding fuel surcharge was CAD129.3 million compared to CAD132.9 million in Q4 of 2011, a decrease of 3%. Volume was down because of lower customer demand though prices were fairly stable. We are continuously focused on managing costs and minimizing capital engagement. Our truckload divisions are also integrating their efforts in order to generate greater synergies and to carefully manage capacities.

The cost reduction measure and structural efficiencies help us increase our EBIT by 10% from CAD11.4 million in Q4 of last year to CAD12.5 million in 2012. In the energy sector, revenue from -- revenue net of fuel surcharge was CAD95.8 million, a 5% increase over last year. This increase is due to the E. Miller acquisition. Since the beginning of the year, activity in the Canadian Oil and Gas industry has been declining and certain customers have greatly reduced their drilling activities.

Because of the sharp drop in activity, EBIT decreased to CAD7.11 million compared to CAD10 million last year. We believe this market will continue to be very difficult through 2013. Despite the decline, this is a highly profitable segment for us so maintaining is very important. Finally, in other Specialized Services sector, revenue before fuel surcharge was CAD82.6 million versus CAD81.3 million in Q4 of last year. The increase came as a result of a spike in demand from our Canadian mining sector in our Logistics business.

Looking out, our industry continues to face very difficult times and we do not see any significant improvement before the end of 2013. Nevertheless, we will maintain our focus on maximizing return on assets and we will be working to further capture the synergies from the acquisitions made over the past two years.

We remain committed to doing more with less, to completing the implementation of state-of-the-art IT platform, and to ensuring our cash flow remains strong. As was the case in 2012, our solid financial foundation allows us to reimburse debt, to repurchase shares, and to constantly upgrade our system and tools and to continue to seek carefully targeted acquisition opportunity.

This strategy has been successful and will enable us to achieve even stronger results should the North American economy regain momentum. Our customer base is strong, and our integrated value-added transportation and logistics solution are helping us constantly generate these superior returns on our assets.

At this point, I would be pleased to answer any questions you may have.

Thank you. Ladies and gentlemen we will now conduct the question-and-answer session.

(Operator Instructions)

Walter Spracklin, RBC Capital Markets.

Thanks, very much, good morning, Alain.

Hi, good morning Walter.

Just starting on with your Package and Courier segment, it looks like you are progressing very well with your cost saving initiatives. Would you characterize, so my question is, would you characterize these is coming in ahead of schedule or as expected? And, can you update us on the expected rollout of the IT platform across both Loomis and Canpar? Where that stands as well.

Very good question, Walter, what I can tell you is this. I am very happy with what has been going on in Dynamex right now, US and Canada. Yes, you're absolutely right, on the Dynamex same day business we are a little bit ahead of our schedule. Why, because, there, it was a major issue of overhead. So, overhead for us, to trim cost in the overhead and to become more effective and to reduce the number of locations, et cetera, et cetera, it is something that we use to do and it's something that can be done much faster. Canpar Loomis, that is a different story because this is an operating situation. So, so far, what we have done there, we are on plan with the timing. But, we haven't done much of the improvement yet. The big job really for Loomis Canpar starts in 2013, '14, and '15 where we need a lot of integration between both divisions.

Going back to your initial question, on the same day business with Dynamex, yes we are little bit ahead of schedule, but now we are going to be slowed down because of this Velocity acquisition. Velocity will be some kind of a drag to our profitability within the next 6 to 12 months. Because it's going to take us about 6 to 12 months to really integrate or dynamize the Velocity-type of operation we've got. We just took on the company February 1, we're starting the first integration late in March of this '13. And, that process will take probably 12 months. So, probably late in '13, most of the network will be dynamized. The only area where Velocity was stronger than Dynamex is really in the Southeast where Dynamex has always been weak, Florida, Georgia, the Carolinas. That's an area where we will be gaining a lot of coverage and business there.

We are very happy with what is going on in our package. ICS is doing well. ATS is doing well, too. Although the market is soft in terms of volume. We're looking at the month of January in our package and February in our Package and Courier. The business is really soft in Canada and quite good in the US on the same day.

Okay. And, you are saying that really, the next to step your Loomis integration is the operating aspect of improvements there? I think you mentioned before you wanted your IT platform consolidated before you could take that next step?

Yes, exactly. That IT thing should be done with -- probably by the summer of 2013. We had an issue with the supplier of equipment that slowed us down a bit. Motorola, which supplies the equipment, we had some bugs there. Although we use them in all of our division, but the new equipment that they supplied us with, some problems with it, so it slowed down the rollout of this equipment. But, we are still on target for the summer of '13. Now, once this is done, then we can start attacking and making some improvements to our operation both Loomis and Canpar. But, it's always the same issue. If you can't measure it, you can't manage it. So, now we're going to have the same kinds of tools that will apply to Loomis Canpar so that we're going to be in a position to do what needs to be done.

The guys at Loomis have done a fantastic job over the last 12 months. Because don't forget we bought this company and this was a cash flow negative company. So, right now, we are at close to breakeven point or at the break-even point now. For sure, January and February, those months are never the best months. But, we are in that neighborhood there. We need the next push to bring this company to a more reasonable profitability level. I think that by the end of '13 we should be in the 2%, 3%, 4% profitability situation. We need to make a lot of improvement there into the productivity, the sorting, et cetera, et cetera. The distribution, we are working on a project right now in Quebec and Montreal. We have many balls in the air. But, I'm very happy with the trend on our package.

Great, and when you look at -- you mentioned some of the changes that have happened at the organization in terms of acquisitions. And, now another quarter is done, with regards to your guidance for 2013, you had previously, I believe, said CAD25 million improvement on 2012 on a flat revenue environment. Now that you've purchased Velocity, you have seen the fourth quarter come in, any update in terms of what you expect in 2013 for EBITDA and your free cash flow?

Yes, what I could tell you, though, Walter, is when I look at '13 after two months, I am very disappointed with the revenue environment that we see in Canada. True, that those are the two worst months that we see, but we see our energy business really slow down big time in Canada, again. Which is not great, because it was already bad last year, so we went from bad to worse in Canada. So, this is creating some problems for my forecast for 2013. Plus also, we now have a slowdown in the Bakken. The rest of our business in energy is flat, but the Bakken in Canada has really slowed down for us big time.

Even if you look at my Q4, my energy, yes I am up in revenue, but without Miller I am down. So, the trend is not good. I can't understand really what is going on because oil is at CAD90 a barrel. I don't understand why the drillers are not drilling. If you look at the numbers that these guys are coming out, the drillers, they are not good. And it is affecting us. This is really the area that I've got a big question mark. Because in my mind, with neutral revenue, I saw us improving by CAD20 million, CAD25 million. Right now, with what I see, I see a lot of cloud in the energy sector. So, that will put a lot of pressure on my bottom line because this was a gold mine for us. The Bakken was a gold mine and now it is a sand mine. That's why I've got to be very careful with what I see so far.

In our packers, that's a different game. In our LTL, it is still -- it's a slow start of the year. I don't know, is it because in the US we have got this sequester there? They've raised the payroll taxes, that affected the retail business big-time in Q1. That's probably going to affect us for Q1 and Q2. If you remember what I was saying is that last year our Q1 and Q2 were great and three and four were a little bit slower. And, I said, probably one and two, Q1 and Q2 in '13 will probably be slow and three and four should be much better than '12. And, I think that this is what we are seeing so far.

So, I would be very careful with the investors to say, guys, we delivered about CAD386 million in '12, yes we are adding revenue with the Velocity, but it's going to take us some time to bring that revenue to profitability. But, we are losing on the energy sector. No question about it. Marc Fox and his team are working now, and they understand because we saw that slowdown in Q3 and Q4. But, we had all kinds of excuses, oh it's the election. And, after the election, oh it's because they don't have any CapEx budget. And, now we're looking at January and February and say, what's going on? It is slowing down. That is the big question mark for the first six months.

Don't forget that this is a cyclical business. And, I have looked at Murray coming out with his Q4 and he sees exactly the same thing as us. Alberta is slowing down. So, that's why we've got to be careful. I think that we will beat 2012 in terms of EBITDA. But, it's going to be a tough start of the year.

Okay, that's all my questions. Thanks, very much, Alain.

Pleasure.

David Newman, Cormark Securities.

Hi, Alain, how are you doing?

I'm doing good, David. How about you?

Very good. Just further on the energy side. We are seeing some of the other players that are beginning to move, shut down branches, move equipment around, go into the stronger regions. Canada, obviously horrific. Bakken now slowing, Texas, I think, is still going fairly decent.

How does that all play out in terms of what you -- how you move assets around? And, I guess there's got to be some stickiness to it. You don't want to basically -- revenue does move around quite a bit, so you don't want to impair yourself in Canada by the same token. Is there something you can do to -- it looks like Miller was a bit of a negative EBIT in the quarter. What can you do?

Yes, let me give you a little bit of a picture. The South for us is doing okay. In the US, if I look at my Q1 so far, my revenue is stable, my profitability is a little bit down, both in the Rockies and in the South, if I exclude the Bakken. Really, the Bakken is really my nightmare right now. It's a disaster because the revenue just went away.

In terms of equipment -- and it is cyclical. It is cyclical, my question to my guys is this. Is this revenue going down because the market is slowing down or because now we have a little more competition? So, for sure we have a little bit more competition in the Bakken than we used to have, say, three or four years ago. That's why it was a golden mine for us, a gold mine for us. Is it going to come back? Probably never as good as it was. So, for sure, you're absolutely right. Is that we're looking at moving some of our assets. Right now, if I look at my assets and my revenue I have got too much asset.

We know that this was a cyclical business. We know that Texas is going to boom with the Eagle Ford. It's are ready doing better. But, Louisiana, for us, is slowing down because it's a dry well. It's a natural gas. When you look at our picture in the US today, you say, okay, if you exclude the Bakken, we are doing fine. If we put the Bakken in, that is where we are losing the revenue and I don't see it improving before, I would say, probably the end of '13. Which, to me, is nonsense because oil is CAD90 a barrel. The price is great.

Yes, even the railroads are moving -- apparently moving a lot of oil out of the region.

Exactly.

You would think you have got a conduit out of there.

That's right. So, is it that they've got so much oil right now with the wells that they have that they just said, you know what, let's stop drilling because there is no other way out than the rail and the rail cannot supply the demand. So, that's why we're seeing the drillers slowing down and that is affecting us.

What does the pricing look like in some of the moves you are doing? Is a beginning to really come off as well? It guess that depends on the region.

It depends on the region. The pricing in Alberta is terribly bad. Terribly bad because with the market that is going now we have new players coming in. It's nonsense. Alberta, our revenue last year was, on the rig moving side, it was about CAD50 million and this year we will probably end up with about CAD35 million, and with price pressure.

The good thing, though, in Alberta is that the oil sand related business that we do, that is doing well. And, that is going to do better this year than last year. On the oil sand side of it, which is the biggest share of our business in Canada is the oil sand related business. So, that is going to do well in Canada, yes.

How much of it is oil sands in Canada, of your total business?

It's a little over CAD100 million that we do.

Okay, got it. Go ahead, Alain.

So, it's really -- that's why I am so careful with my prediction for 2013 is that in my mind we're going to do better than '12. But, the first six months are going to be difficult when I look at the revenue. But, I'm very confident that with all the cost initiatives that we have and all the work that we are working on, it's going to give us some results. The big problems that we have is really the energy sector in the Bakken and Alberta on the rig moving side. Alberta on the oil sands related business, we are doing great.

Interesting. Overall, if you had to look aspirationaly, your margin targets by segment, you gave Walter a great rundown on the Packaging and Courier side, now the energy side, any -- and the LTL, obviously, is still the good and bad and ugly. First guy to blink. How are you looking at, in terms of the margin targets, for each one of your divisions for this year?

I think truckload is going to be probably the same as 2012. LTL we should improve. Although it's a slow market, it's a very slow start of the year. But, on the global total year, 2013, our profitability should improve in our LTL. And then, you look at our package, the same thing. The only drag that we are going to have is Velocity. Because Velocity, we bought it, Velocity doesn't make any money.

But, it's going to be a turnaround, it's going to be a tuck in, it is not going to take three years to do. So, that's why dollars I'm sure I'm going to be better the next year, this year than versus last year. In terms of percentage, probably a little bit better. But, if you look at my Q4, huge improvement versus the year before.

Absolutely.

We're on the right track. The package, I'm looking at my volume so far in 2013, I am up in the US, I'm a little bit down in Canada, just a bit. So, package to me is not an issue. The big thing in my mind is really the energy where I lost probably 75% of my hair with that, so far.

At least you're not where I am at yet. Any margin? Or is it just too tough to gauge right now, what you think the margin could be on the energy side?

It's too tough because there are too many balls in the air. Too many unanswered questions. Like I was saying earlier, we had the excuse of the election, we had the excuse of the CapEx. We had all kinds of excuses there. And, I said to Marc, I said, Marc, Jesus Christ, let's go down to the details and really understand what is going on over there. Because I think that our guys were misled.

Excellent, thanks Alain, appreciate it.

Okay.

Cameron Doerksen, National Bank Financial.

Good morning.

Hi, good morning, Cameron.

A question on the M&A side. You guys generated very strong free cash flow in 2012. Even with some of the weakness you are still going to probably have a very good year for free cash flow. So, maybe you could just update us on what you're seeing out there for M&A? And, I guess with Velocity Express done now that the focus is really more on the LTL segment, is that fair to say?

Yes, it is. You know why, Cameron? Because our guys in the US at Dynamex and Velocity will be busy. Probably I can't do anything there until probably September of 2013. Although, there is lots of potential on things that we could do there. So, this is why -- we're going to turn probably to LTL, LTL in Canada is a big problem. It's a big problem because there are too many players, there's too much capacity, and the market is shrinking every day. So, we need to do something else. Us, we're the leader in this segment in Canada, and something has to be done.

There are some players that are getting tired. They have to do something. There are some families that are getting tired. This is like when we bought Quik X, Mr. Babcock was a certain age, and when you are at a certain age you say, you know what, its time for me, I built this company and it's for me to get out. And, we see some of that in Canada right now. So, probably our next important move should be in the LTL sector. The truckload, we're staying very quiet on that.

And, really, on the growth -- organic growth, we are investing a lot of money in our waste management business. So, as you know, we are expanding our compost facility at Moose Creek. We have built a transfer station in Belleville, which we opened up about a few months ago, to give us the possibility of hauling some waste out of the Northeast side of Toronto and all along the St. Lawrence River. We're also building something in the Ottawa neighborhood. So, waste management, for us, we are still investing a lot of dollars in terms of organic growth with very good results. So, that's a year -- a transition year for us in the waste. So, we're investing. You won't see big results in Q1 and Q2 of our investment but you should start to see some nice results probably late in the year 2013.

Going back to your question, LTL in Canada, nothing in the US, so we are not going to buy Vitran US LTL. It's completely out of the question. We have partnerships, that's way we service the US. It's not through buying companies. It's too big of a market. It would take too much of an investment for us to really get involved in the US LTL. And, we don't want to do that. It's really the Canadian LTL and on the same-day package. As soon as we are solid with this Velocity acquisition, then we will go to the next one.

Okay. And, on the Vitran, they have obviously announced a -- unlocking some value there with the sale of their supply-chain operation. Does that change your view on that investment? Are you happy to just sit on that? Or what is your strategy there?

We're just sitting on that, Cameron, we are just sitting on that. I had a chat with Mr. Gaetz. We're listening to his plan. We know the LTL business. We know it's not easy. And, turnaround it's not easy to do. Our situation, us, is we are busy. We have our own issues, like we just explained in '13 we have the energy that's a major issue of ours. That's why I'm going to be more involved with Marc Fox to make sure that we are on the right track there. And, we have to also digest this Velocity thing.

Come summer, we will know more what is going on with Vitran and probably then we will make a decision where it's best for us to go. But for now, we're just sitting and waiting to see what's going to happen there. It's a small investment for us. We invested CAD10 million. It's just a toehold. We're probably the second-largest shareholder after an investor, so we are waiting. We're just waiting to see how his plan goes

Okay, just two other quick ones. One, you've got some convertible debentures that I think you can redeem in November. Any thoughts on what your plan is there?

If we can redeem in November, Cameron, they are gone. We are buying them back.

Okay.

That's for sure.

All right. And, your expected CapEx for this year, should it look fairly similar to 2012?

Absolutely, net CapEx is no more than CAD50 million. One area that for sure we will not have any CapEx is the energy.

Right.

Okay? And, the big CapEx for us, this year, will be in waste because we are building that transfer station in Ottawa. We're building that compost so that those two investments are close to CAD9 million. So, that will be the big story for us. We have some CapEx in the IT for Canpar Loomis. The LTL business and the truckload, that is normal.

Okay, great, that's all my questions. Appreciate it.

Okay, thank you, Cameron.

Benoit Poirier, Desjardins.

Good morning, Alain.

Good morning, Benoit.

I don't want to beat a dead horse here, but if we come back on the energy, Alain, do you mind -- do you consider selling some assets right now or doing a big restructuring? What is the potential opportunities for you?

Selling assets, Benoit, it's out of the question. It's not a dead horse, it's a sick horse. Our business is we're going through a transition right now in the energy in Alberta and in the Bakken. We believe that in the US, things will get better. That's why -- no, restructuring, doing something, for sure. When Marc comes to me with the results that we are having in Q4, we are down. So, for sure, we've got to make some moves. And, that's what we're doing now.

But, you see, it's always -- the perception is, like I said earlier, we were misled on the revenue side because we had all kinds of excuses. And, maybe it's because we are naive. We believe that because we are not the US. And, we are new to the business. So, we believed what some of the guys were telling us. But, we are not naive anymore. So, now we took the gloves off and now we are getting involved. So, for sure, we're going to have some changes there, no question about it. So, we must bring the revenue back in the Bakken. Because that is really the area where we have major issues is the Bakken. The rest of the US operation, I am satisfied. We have some issues, but we are working on it.

And, Texas is doing well and I'm very happy with what is going on in the South. Those guys are doing a great job. I was looking at our operation in Pennsylvania. We're doing fine there and it's only natural gas. We are doing fine and it's only natural gas. I was looking at our Rock Spring operation in Wyoming. There, we are doing good. But, the Bakken has been a nightmare for me for the last few months. And, now the gloves are off. And, as I said to Marc, maybe we are going to have to move to Williston, North Dakota pretty soon.

Okay, very good color, Alain. And, if we come back on Velocity I understand that the integration will take about 6 to 12 months. But, what is the potential in terms of margin improvement? Is it a business that should generate a double-digit EBIT margin in line with the rest? And, what are the big steps that you are going to do in the next few months in order to achieve those margins?

Let me tell you this, Benoit, our guys at Dynamex USA have done a great job. And, I could tell you that in January, and in February, our EBIT of Dynamex in the US is double-digit. That's a first. Never happened before. Okay?

Good job.

Very good job. Now, Velocity, those guys are not making any money. So, the steps that we're doing is that we are dynamizing the West and the Midwest. The West and the Midwest represent about CAD28 to CAD30 million of revenue over the course of the next two months. When I say dynamize, what do we mean by that is we either move the business from a Velocity terminal into a Dynamex or vice versa.

And then, we jump on the Northeast, so Northeast, we are starting now. And, we're looking at what we can do, for instance, in all the terminals that we've got with the customers. And then, Northeast, we will probably start making some move late in April. And, that should be done with by the summer of 2013. And, the last -- the Northeast is about CAD58 million of revenue, Northeast with Velocity.

Is this mostly about reducing the overhead? Is it -- (multiple speakers)

Absolutely, it's all overhead, it's all overhead. It's all a question of overhead, Benoit. It's got nothing to do with the gross margin. As I said to my guys, guys, we are not chasing better margins for now. Let's cut the overhead because the killer at Velocity was really the overhead. Their gross margin is not in line to where it should be, but that's not that big of an issue. That's probably a CAD5 million issue, the overhead is a CAD20 million issue or CAD15 million issue.

Okay, very good color. And, could you maybe provide some color about the strategy behind tapping the e-commerce opportunity? It seems like there's a lot of potential for you on that side. I am just curious about what type of margin profile -- obviously, there's a lot of growth in the e-commerce. What is your strategy there, Alain?

Our strategy is very simple, Benoit, is that if you are sitting down with an Amazon and all these guys, you need some kind of a coverage. You need some kind of network. So, right now, most of the business is done through the same-day -- through next day guys like FedEx and UPS or USPS. But now, more and more, you see Amazon and all these guys looking at the possibility of doing more and more same-day. Same-day is always cheaper than next day.

So, there is a transition that is taking place right now in the US from the next day to the same-day. It's not going to be completely same-day, but there is a transition. But, when you sit down with some guys, you need density, you need coverage. Right now we are a CAD500 million company same-day in the US. Great, but not good enough. That's why we need to digest Velocity ASAP so we can go to the next step. Adding CAD100 million, CAD200 million, CAD300 million more in revenue to give us the critical mass to be able to say to those large accounts like Walmart, we know Walmart is testing with UPS. But, they could do some areas with us. Amazon, we're in Chicago with those guys right now testing.

So, there are some things that we can do. But, before that, we need some critical mass to do a better job. And, that's the same thing in Canada. Although Canada is delayed by a few years. So, in our next day business, this is why it is so important to us to have some kind of a more of a unified coverage with Canpar Loomis and ATS over the next two to three years so that we can be a solution to Puro and Canada Post. Because with a unified solution, then we've got the density and the coverage on the next day. On the same day, we are really the big player in Canada. The only thing we need to do is to keep on growing the business in Canada.

E-commerce for us is not going to be a big thing this year, but we are working on it. And, it could be something very significant over the next few years. Why? Because the shippers are trying to move away as much as possible from the next day guys because they are more expensive. Think about it, Benoit, because a next day guy picks it up, he is picking it up now, brings it to his hub, sorts it, lines it to the terminal destination, and then sorts it again, and delivers it. That's what we do in the next day. On the same day, we roll back at the Staples store, and everything is sorted and we just have to deliver it.

I see, I see. Okay, perfect. Very good color. And, could you please give us an update on the consolidation of number of terminal LAR? Are you still looking for about (multiple speakers) terminals in the next two or three years?

Oh, yes, oh, absolutely. And, with Velocity, in 2013, I think with Velocity we will probably do at least 40 in the course of the year.

Wow.

Yes.

40 out of 50 terminals will be --.

No, 40 total. Because some of them are Dynamex, some of them are LTL. What I am saying is that in the old days I used to say we are going to close down up to 50 over the next two or three years. Now, what I'm saying is that we will probably be closing down up to 40 in '13.

Wow, okay. We should see a big improvement in the margins?

For sure. But, look at the improvement we did in Q4. So, remember, we were at 6% EBIT and now we're up to 8% in Q4. And, as I told you, Loomis Canpar are not there at all. I said to the guy that runs both companies, out of the five, Jim, now you run four and five. Because Dynamex now is ahead of you.

Okay, that's interesting. And, maybe last question if I may, you gave pretty good color about the growth and the challenge to some guidance at the beginning. But, what about free cash flow generation this year? You were previously guiding for about CAD275 million. Should it be more comparable to what you achieved in 2012, Alain, or --?

If I remember correctly, we did CAD270 million in 2012. And, with what I know today, with this energy situation, I would say that between CAD250 million and CAD270 million is probably the right number. Also, I have to pay a lot of money to our friends in Ottawa. The reason being is that when we were a trust, the conversion from a trust to a corporation, we deferred a lot of taxes when we did that.

But, now is the time to pay, so we are paying this year a lot of that deferred. That's going to be affecting my free cash flow this year which is an unusual item. But, that's one that's going to be affecting me. That's why I would say CAD250 million to CAD270 million is probably the number for this year and that tax thing there is over CAD20 million.

Perfect. Thank you, very much.

Okay, very good, Benoit.

Turan Quettawala, Scotiabank.

Yes, good morning, Alain, how are you?

Not bad, Turan. How are you?

Very well, thank you, very much. A lot of the questions have our to been asked, but I just have a couple of quick ones. First of all, on the energy business, I guess my question is more -- you have done a great job over the last couple of years both in LTL and on TL despite the fact that revenues have not been that strong.

In fact, it has been coming off on an organic basis. You've done a good job of restructuring. So, my question is, is it harder or easier to restructure the energy services business assuming that the revenue environment remains weak here for a little while?

You know what, Turan, the first thing is when you don't know you have a problem you can't fix it. As I said earlier, we were dreaming, we were misled. We thought that we didn't have a problem because we blame that to the election, then we said those guys have no CapEx, et cetera. Now we know we have a problem.

So, to answer your question, is it harder to reduce the cost in the energy environment versus an LTL or truckload? Yes, it is a little bit more difficult. Why? Because you are stuck between a rock and a hard place in the sense that the business is going down, but if you don't do anything with the employee and you just let them go, then when the business comes back, you've got trucks but you don't have anybody.

So, you understand that there is a cost of maintaining the business. Now, if we look at the situation in the US, in my mind, it's temporary. It cannot last, cannot be slow like that. It's impossible. Oil is at CAD90 a barrel. The US wants to be more energy independent. So, it's just a timing thing. So, this is why it's going to be important to us that we keep our human resources and our assets. And, go to the store, cut everything that we can in the meantime, but we have to go to the store.

But, to answer your question, it's a little bit more difficult than in the truckload. Truckload is probably the easiest one to do, and then the LTL and the energy is the most difficult one to do. But, again, if we don't know that we have a problem we can't fix it. For the last four or five months we were dreaming. We are saying I think its election, I think it's this. Now we know this is (expletive) and that things were slowing down and we were blind.

Fair enough, okay. That's great color, thank you very much. And, just one more question on the Velocity side. Can you give us a sense of how much of Velocity's business -- I think they had a lot of, I guess bad business is one way to put it in terms of -- and so how much of that do you think you're going need to exit here in the near-term just to look at the margins? Thank you.

I think that what's going to happen there, Turan, is that the bad business that was there is already gone from the day that we bought it. We lost -- we lost, that's a big word. There is an account that decided to switch to some of our competition there. According to Velocity management we're not making any money. So, we lost and we did lose.

But, in total dollars, I would say that out of the CAD170 million that was there when we bought it, and out of the CAD170 million, CAD8 million is Canada. So, let's say CAD160 million was US. So, US from CAD160 million will drop to CAD140 million.

Fair enough.

But, Dynamex on the other side is growing organically in the US. My first two months of 2013 I'm growing at about a 5% rate in the US.

Wow, okay.

Yes, in the US, not in Canada. Canada, I don't know what's going on in Canada. But, we are not growing in Canada.

Okay, and also just in terms of the outlook on an organic basis, I guess the worst is probably on the energy side. Can you give us a sense of what is the best business? Is it Dynamex that is growing?

I would say that the parcel should grow, excluding the acquisition, and I would say that's probably the only area that is going to grow organically.

Okay, but that's just US, right?

Yes, that is only US.

Okay. That is great. That's all I had, thank you, very much.

Okay, Turan, have a good day.

Ben Vendittelli, Laurentian Bank Securities.

Good morning. Thank you, all my questions have been answered.

Okay. Well then, Ben, have a good day.

David Newman, Cormark Securities.

Yes, just a quick one, Alain, just on your Specialized Services. You mentioned that there has been huge spikes in demand on the mining sector which seems counterintuitive. And, I certainly wish the investment dealers were experiencing the same thing. But, any color there just on what's going on?

This is the mining sector that we have in northern Quebec. We did very well until we have this new lady that is Prime Minister in Quebec that decided that royalty were probably not enough. So, from that day, it's like it is frozen winter.

Okay.

So, this is why -- this was great for us in Q4. But, what we're seeing right now in Quebec and that is affecting a little bit our truckload is that it's really the winter. Everything on the mining side has been stopped right now. Because they're just waiting to see what these guys in Quebec will do with the royalty.

Right. I see it also in sea and rail pulled out of the whole plan north. So, does that affect you tangentially down the road as well, I guess? Or you have to push out or --.

I think that their decision is really based on what happened politically in the province. So, I think that those guys in Quebec City will probably come up to their reason to understand that mining could be done in Canada but it could also be done in Australia and, I don't know where, in Africa. So, if you are not competitive on the royalty, then -- because Quebec used to be very competitive on the royalty side until a few years ago. And, they start to charge more, and now we're in a position that if we continue doing that --.

We're shutting down projects.

Exactly.

Yes. Okay, thank you.

But, Alberta made the same mistake in 2007, 2008 when they start talking about increasing the royalty on the oil and gas and guess what happened?

Yes, same thing.

Same thing. I think those political guys, they don't learn.

This is true. Thanks, Alain.

It's sad because us, we are paying the price.

Yes, absolutely. They will learn, it will swing back, I'm sure.

I hope that they come to reason.

Yes, absolutely, thank you.

Okay.

(Operator Instructions)

Kevin Chiang, CIBC.

Hi, just a quick question here. Given your commentary around what has happened in the energy patch, have you changed or looked at your governance or communication structure to try to get ahead of certain headwinds before they happen so you can right size your operations versus maybe walking into an unknown situation like you had this quarter and having to adjust on-the-fly? Has there been any changes in your governance or communications to nip this in the bud sooner?

Not really, Kevin. What are you actually saying is that we should have said something before that? Is that what you're saying?

No, because it sounds as though, based on your commentary, that you had a certain belief in terms of the outlook for the energy department or energy service division. And, it seems as though when you looked at the numbers with more granularity that essentially you felt that you were misled in terms of the true outlook of the company.

I'm wondering have you changed your communication or governance structure to try to get ahead of that? So, that you get those numbers sooner so that you can right size those operations ahead of time?

I think, Kevin, where we made a mistake, us, is really because of inexperience of the market. Our local management, they were telling us what they believe was the reality. When I say misled, misled by not knowing exactly the reality. Our local managers were telling us this is the reason, this is the reason, this is why, this is why. And, us, because of our inexperience, we said okay, it makes sense. Maybe it's because of the election, maybe it's because of this, maybe it's because of -- but then the election is over. The year 2012 is over.

And then, I look at my numbers and say hey, guys, what is the excuse now in the Bakken? I'm just talking the Bakken. And we say, I think that we were wrong. So guys, now let's go deep into the situation. And, Marc Fox is now involved. This is his top priority with Jared, our VP of Operations there. And, we're going to get it fixed. Because it doesn't make any sense what happened there.

Makes sense. That's it for me. Thank you.

Okay.

Mr. Bedard, there are no further questions at this time. Please continue.

Thank you all for joining us on our conference call today. I look for to speaking with you again following our 2013 first quarter results. Have a good day, thanks a lot. Bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. Please disconnect your lines.